Question

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter:

a.	As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

	Debits			Credits
Cash	$	50,000
Accounts receivable		232,000
Inventory		57,000
Buildings and equipment (net)		367,000
Accounts payable				$	93,000
Capital shares					510,000
Retained earnings					103,000
	$	706,000		$	706,000

b.	Actual sales for December and budgeted sales for the next four months are as follows:

December (actual)	$	290,000
January		380,000
February		570,000
March		280,000
April		180,000

c.	Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
d.	The company’s gross margin is 40% of sales.
e.	Monthly expenses are budgeted as follows: salaries and wages, $26,000 per month; advertising, $67,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales.
f.	At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.
g.	One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month.
h.	During February, the company will purchase a new copy machine for $1,400 cash. During March, other equipment will be purchased for cash at a cost of $85,500.
i.	During January, the company will declare and pay $47,000 in cash dividends.
j.	The company must maintain a minimum cash balance of $32,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

Required:

Using the preceding data, complete the following statements and schedules for the first quarter:

1.	Schedule of expected cash collections.
	HILYARD COMAPNY Schedule of expected cash collections Jaunary Feburary March Quarter
	Cash sales Credit Sales Total cash collections

      

2-a.	Inventory purchases budget.
	HILYARD COMAPNY Inventory Purchases Budgets Jaunary Feburary March Quarter Total needs

          

2-b.	Schedule of cash disbursements for purchases.
	HILYARD COMPANY Schedule of cash disbursements for purchases January Febrarury March Qarter
	dECEMBER pURCHASES January Purchases Feburary Purchases March Purchassees Total Cash Disbursements for purchases

          

3.	Schedule of cash disbursements for expenses.
	HILYARD COMPANY Schedule of cash disbursements for operating expenses January febrarury MArch Quarter
	Total cash disbursements Operating

      

4.	Cash budget. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments" and "Interest" should be indicated by a minus sign.)
	HILYAR COMPANY cash Budget Jaunary Febrarury March Quarter
	Total Cash avialble Deduct: Disbursements Total disbursements Excess of cash Financing: Total Financing

      

5.	Prepare an income statement for the quarter ending March 31.
	hILLARDO COMPANY Income statement For the Quarter Ends March 31
	Deduct cost of goods Goods available for sales Deduct operating expenses

      

6.	Prepare a balance sheet as of March 31.
	HILYARD COMPANY BALANCE SHEET as march 31
	Assets Current Asssets Total current assets total assets Liablity and shareholders equity current liabilties Stackholders equity total shareholders Equity Total Liability and shareholders Equity

      

Answer 1

Answer to Part 1. Cash Sales Collection from Credit Sales Total Cash Collections Schedule of Expected Cash Collections January February 76000 114000 232000 1304000 1308000 418000 March 56000 456000 512000 Quarter 246000 992000 1238000 Answer to Part 2 Budgeted Cost of goods sold Add: Desired Ending Inventory Total Needs Less: Beginning Inventory Required Purchases Merchandise Purchases Budget January February 228000 342000 85500 42000 313500 384000 57000 85500 256500298500 March Quarter 168000 738000 27000 27000 195000 765000 42000 57000 153000708000 Schedule of Expected Cash Disbursements - Merchandise Purchases January February March December Purchases 93000 January Purchases 128250 128250 February Purchases 149 250 149250 March Purchases 76500 Total Disbursements 221250277500 225750 Quarter 93000 256500 298500 76500 724500

March Answer to Part 3 Cash Disbursements for Expenses January February Salaries and Wages 26000 26000 Advertising 67000 67000 Shipping 19000 28500 Other Expenses 11400 17100 Total Cash Disbursements for Expenses 123400 138600 26000 67000 14000 8400 115400 Quarter 78000 201000 61500 36900 377400 January 50000 308000 358000 February 32350 418000 450350 March 32850 512000 544850 Quarter 50000 1238000 1288000 221250 277500 1400 Cash Budget Beginning Cash Balance Add: Cash Collections Total Cash Available Less: Cash Disbursements For Inventory For Equipment For Cash Dividends For Expenses Total Cash Disbursements Excess (Deficiency) of Cash Financing Borrowings Repayments Interest Total Financing Ending Cash Balance 47000 123400 391650 -33650 225750 724500 85500 86900 47000 115400 377400 426650 1235800 118200 52200 138600 417500 32850 66000 -66000 -1980 -67980 50220 66000 -66000 -1980 -1980 50220 66000 32350 32850

1230000 Answer to Part 4. Hillyard Company Income Statement For the Quarter Ended March 31 Sales Cost of Goods sold Beginning Inventory 57000 Purchases 708000 Goods available for Sale 765000 Ending Inventory 27000 Cost of Goods sold Gross Profit Selling and Administrative Expenses: Salaries and Wages 78000 Advertising 201000 Shipping 61500 Other Expenses 36900 Depreciation 42000 Total Selling and Adminitrative Expenses Net Operating Income Interest Expense Net Income 738000 492000 419400 72600 1980 70620

Answer to Part 5. Hillyard Company Balance Sheet March 31 Assets Current Asstes: Cash 50220 Accounts Receivable 224000 Inventory 27000 Total Current Assets Building and Equipment, net Total Assets Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable Stockholders' Equity: Common Stock 510000 Retained Earnings 126620 Total Stockholders' Equity Total Liabilities and Stockholders' Equity 301220 411900 713120 76500 636620 713120